Strategy Advantages

Costs / Cost Control
  • Fully developed cost of an ERC MHR community should approximate 60% to 70% of the cost of a conventionally built single family home community
  • Direct material and labor costs lower as they are factory-built
  • Land allotment is approximately 1/3 less than what is needed in conventionally built homes
  • ERC estimates MHR home prices at approximately $160,000 per home, with similar square footage for a conventionally built home in close proximity at $250,000 or more
  • Cost control highly enhanced given developer’s elimination of numerous trades including floor-slabs, wall construction, drywall, paint, internal plumbing, internal electrical, internal HVAC, paint, flooring, roofing and more
    • Allows for tighter pre-purchasing and higher level of fixed of costs
Speed To Revenue
  • Horizontal” nature of land development and construction (underground, paving, and landscaping only), makes sites available sooner
    • Homes can be moved into the community faster, and in groups
    • Homes are made available for rent sooner
  • ERC anticipates that most homes will have lease contracts in-place prior to being transported to the community
    • Once homes are set up, rent collection can immediately commence
    • ERC projects 100% occupancy of its developments that are 100 units or smaller within 12 months
Zoning & Entitlements
  • ERC’s MHR communities will be developed outside of core urban areas where higher and better uses of land are more likely, resulting in lower land costs and faster entitlement processes
  • According to surveys, monthly rent savings of $1,000 is worth as much as 15 to 20 minutes of additional commute to renters
    • ERC will seek entitlement of land that is “a bit further out” and not in competition for higher zoning uses
    • The ERC development team will ensure that proper zoning and entitlements can be achieved before acquiring land for new development
Affordability
  • The KEY to the ERC MHR platform strategy is to address the strongest and broadest market demand
  • Focus on extensive need for separate family living in 3-bedroom / 2-bathroom homes approximating 1,400 square feet
  • Homes that are affordable for entry-level families
    • Of particular concern in the in-migration states of the Southeast, where single-family home prices and rental levels are increasing materially
    • Approximate $1,000 / month savings afforded in ERC’s MHR communities allow for a broader, deeper market of potential renters

Product Overview

  • Cost: Average cost per home estimated at ~$65,000; all-in development cost of ~$160,000
  • Home Build: Prioritization on structural integrity over amenities
    • Features such as hard-surfaced floors (no carpets), wider exterior walls (2” X 6” vs 2” X 4”), senior grade insulation, full FEMA-code storm protection, etc.
    • Optional features such as track lighting, recessed lighting and crown- molding are considered but will be de-prioritized in favor of the above items listed based upon the need for cost control
  • Financial Viability: Despite acute demand for building materials given the ongoing development surge in the in-migration states, ERC believes it can achieve attractive returns
    • Demand driving up the cost of manufactured homes…
    • …However each $5,000 of increased home cost = only ~$31 of required rent to maintain yield – current rent comparables support these rent levels
  • Tax Advantage: Shorter depreciation life of manufactured homes
  • Quality & Maintenance: Overall structural strength of modern-day manufactured homes on par with conventionally built homes
    • Maintenance standards will be rigorous in ERC’s MHR communities, with full internal inspections of each home monthly
    • Homes closely monitored on an ongoing basis
    • Many manufactured homes are 30 and 40+ years old, proving their sustainability. All ERC MHR homes will be brand new, with an advantageous combination of allowable depreciable life and practical longevity

 

Illustrative Homes

Scaling the ERC Strategy

  • ERC will continue to expand its deal- sourcing channels to access new development opportunities, leveraging its relationships across local market constituents including national and local brokerage firms
  • ERC will combine its research-focused approach with both targeted and opportunistic sourcing to develop within markets that fit the criteria for the MHR product
  • ERC anticipates that additional team members will be added to development, asset management, property management and finance as the pipeline and community portfolio grows
  • In-house asset and property management will be leveraged initially, bolstered by local property management, with ERC selecting best-in-class local managers
  • Develop Zephyrhills and additional near-term pipeline
  • Quickly scale pipeline with additional capital infusion
  • As ERC completes near-term developments and continues to build the pipeline, additional senior and junior staff to be brought in-house
  • ERC’s local market presence medium to long-term will depend on where it can quickly build scale
  • ERC will pursue markets that meet its target criteria, provide compelling economic and scaling opportunities based on robust, data-driven research and offer attractive opportunities to acquire land that fits the MHR strategy

Portfolio Scaling and Exit Strategies

  • ERC seeks to develop numerous MHR communities, targeting a run-rate of 3,000 homes per year in the next 3+ years
  • Developed MHR communities are expected to produce attractive cash flow on an ongoing basis as well as benefit from value appreciation
  • ERC anticipates up to 5 – 7 year average hold periods for the developed portfolio
    • ERC will remain flexible and opportunistic in terms of monetization strategies to maximize overall returns and multiple on invested capital
  • ERC anticipates that multiple exit opportunities will exist for the portfolio as SFR becomes an increasingly popular and sought-after asset sector
    • Sector has already become the focus of institutional capital and public REITs who have made significant investments into the asset class
    • Substantial capital continues to be allocated to SFR and will need to be deployed in scale over the next several years; buyers will seek portfolio acquisitions to quickly gain scale